ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
A manager's budget for a department's costs is $480,000. Senior management later establishes that the costs could realistically be $432,000 under efficient operation. What is the budgetary slack as a percentage of the budgeted cost?
The slack is 10.0% of the budgeted cost. Slack is $480,000 minus $432,000, which is $48,000, and dividing by the budgeted cost of $480,000 gives 10%. Using the realistic cost as the base would wrongly give 11.1%.
- A9.0%
- B10.0%Correct
- C11.1%
- D90.0%
Explanation
Slack = 480,000 - 432,000 = 48,000. As a percentage of the budget: 48,000 / 480,000 = 10.0%. Using the realistic cost as the base gives 11.1%, which is the wrong base.
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